Home Loans are divided into two distinct categories: Conforming and Non-Conforming. Quite simply, a conforming loan meets the criteria established by one of two government chartered institutions, commonly know as FannieMae and FreddieMac. If the loan amount is less than about $203,000, the home is a typical one to four family residence, and the borrower shows steady employment and good credit, the loan will probably be conforming. FannieMae and FreddieMac buy about 80% of all US mortgages, and resell them in the form of mortgage backed securities on Wall Street. Mortgage Brokers, Mortgage Bankers, Savings and Loans, Credit Unions and Commercial Banks usually sell all their conforming mortgages on the secondary market.
The remaining 20% of the loans fall into the non-conforming category. Funds for these loans come primarily from insurance companies, private individuals, and depositors' funds. Rates in this category are almost always higher than conforming loans. The higher rates reflect the risk being taken by the investor.
Since loans are frequently sold, the owner of the mortgage selects a company who will service the loan. Servicing consists of collecting your monthly payment, depositing the funds, sending periodic statements and handling borrower inquiries. The company presently servicing your loan is not necessarily the owner of the mortgage. You will be notified to whom you must submit your monthly mortgage payments.